Topline

Wall Street reacted negatively to Friday’s better-than-expected jobs report, a seemingly contradictory result attributed to prevailing jitters in financial markets over interest rates.

Important facts

Why are stocks down?

Stronger-than-expected job growth is a hallmark of a strong economy, but selloffs in bond and stock markets make it clear that this is not what Wall Street expected. That’s because a stronger labor market makes the need for growth-oriented policies less urgent. Friday’s result reflects the market’s prevailing discussion over the past month about interest rate cuts by the Federal Reserve, which increasingly suggests that 2025 may bring fewer rate cuts than previously forecast as the economy looks strong without the stimulus and inflation concerns remain . December’s strong jobs report “could signal to the Fed that there is no immediate urgency to cut rates further or faster.” Eric Merlis, co-head of global markets at Citizens Financial Group, wrote an emailed comment Friday .

Important background

The decline in asset prices in response to robust labor market data is not a new phenomenon, but occurred in 2022 and 2023 as investors looked for weaker labor market data to justify a Fed reversal as it pushed interest rates to a two-decade high lifted. The Fed made a complete about-face in September, cutting interest rates for the first time since 2020, but suggested further cuts could be limited after its rate committee meetings in December. Stocks typically struggle in high-yield environments as profit margins are hit by higher borrowing costs, while bonds fall when interest rates rise because fixed income investor demand for existing bonds with lower coupon rates falls. The S&P is down more than 3% from its all-time high last month but remains up more than 20% over the past year.

Crucial quote

“Today’s payroll report is hot, hot, hot… Investors may want to brace for more volatility as the market resets expectations for fewer cuts,” Gina Bolvin, president of Bolvin Wealth Management Group, wrote in via email Comments sent by email.

Further reading

ForbesDecember jobs report: The job market grew faster than expected as the unemployment rate stands at 4.1%From Derek Saul